Financial services still vulnerable to operational risk

Financial services organisations in general have still not properly addressed the issue of operational risk, according to a survey of the industry performed by chartered accounting firm Deloitte.

The global risk management survey entitled “Accelerating Risk Management Practices” found only 35 per cent of financial services firms had an enterprise risk management (ERM) program in place.

“That means 65 per cent of organisations are either in progress or yet to start. That clearly is something we’re going to be monitoring … and the key question we’re going to be asking is what elements of the ERM program remain incomplete,” Deloitte partner, financial services, Paul Franks said.

Franks believes part of the problem comes from the way companies are using technology in the process.

“We’re still seeing a lot of organisations using technology as the driver [of risk management] rather than the enabler,” Franks observed.

“It’s almost like we’re seeing technology as the panacea to all our ills and we can bring that technology in and everything will go away,” he added.

“The reality is you can do a lot of your risk management functions and processes reasonably well without that sophistication,” Franks said.

In terms of specific shortfalls in addressing risk, 58 per cent of respondents thought their organisation provided insufficient risk training, 65 per cent felt there was inadequate risk integration with normal management activities, and 48 per cent believed there was not enough monitoring and reviewing of risks.

However, while financial services firms did not appear to be managing operational risk well, the study showed they were rating better in other risk areas, especially the local entities.

“When it comes to market, credit and liquidity risk, Australian financial institutions benchmarked well globally, rating their risk management processes as very effective (70 to 80 per cent),” Franks said.

The latest global risk management survey is the fifth of its kind performed by Deloitte. It gathered responses from 130 financial institutions globally that, in total, manage over $21 trillion in assets.